Understanding Puerto Rico’s Economic Troubles

Aug. 5, 2015

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Tourists in San Juan, Puerto Rico, in July.CreditAlvin Baez/Reuters

To the Editor:

Paul Krugman (“America’s Un-Greek Tragedies,” column, Aug. 3) argues that the consequences of the crisis in Puerto Rico have been “muted” because the island has automatically received additional federal funding as its economy has deteriorated.

In the states, federal funding rises in times of economic distress as more people qualify for means-tested programs. But Puerto Rico is a territory, subject to the whim of the federal government. Congress has chosen to cap funding for Puerto Rico under programs like Medicaid and nutrition assistance, and excluded Puerto Rico from other programs like supplemental security income and the earned income tax credit.

Thus, it is not generally the case that more dollars flow from Washington to San Juan as need increases in the territory.

The real-world consequences of Puerto Rico’s crisis have been tempered only because my constituents, who are American citizens, are moving in huge numbers to the mainland, where they qualify for equal treatment under all federal programs.

When will Mr. Krugman and others comprehend that the source of Puerto Rico’s economic problems — which date back decades — is the inequality inherent in our territory status?

PEDRO R. PIERLUISI

San Juan, P.R.

The writer, a Democrat, is Puerto Rico’s delegate in Congress.

To the Editor:

Paul Krugman is right that Puerto Rico is not Greece. But he doesn’t mention several important reasons this is the case.

One is that Puerto Rico has far more room to tax the top half of its economy. Tax collections of just 10 percent of gross domestic product place Puerto Rico behind the 13 percent average of very poor countries and light-years behind the 34 percent of rich developed countries, according to the July 11 issue of The Economist.

Even after engaging in deficit spending, the island and its municipalities spend less as a percentage of G.D.P. (about 11 percent) than all American states and their local governments. The results are deficient public investment in infrastructure, education, transportation, hygiene and public safety. These are all vital considerations for residents and investors.

Lavish tax exemptions and absurdly low real property taxes are gaping holes in the territory’s tax base. Multinationals and wealthy people are virtually untouched, so the government has borrowed its way into a deep hole.

At the same time, the island government failed to develop alternatives to manufacturing. The most evident mistake is the lack of sufficient investment in infrastructure for tourism and entertainment, sectors that remain grossly underdeveloped but that hold immense untapped potential.

DAVID R. MARTIN

AtlantaThe writer is the author of “Puerto Rico: The Economic Rescue Manual.”

To the Editor:

Paul Krugman notes that “Puerto Rico’s low rate of labor force participation probably has more to do with outmigration than with welfare: when job opportunities dry up, young, able-bodied workers move elsewhere, while the least employable stay in place.’’

Then he asks, “And how terrible is that, really?”

I would submit that is the problem with the modern welfare state. In the long term, this phenomenon of having the least employable stay in place will break the fabric of society, create a culture that most employers would not consider optimum: decreasing the likelihood of new employment opportunities.

But then, John Maynard Keynes is famous for the quote “In the long run we are all dead,” so I guess that the modern welfare state is concerned only with short-term consequences.